Chapter 5: Sustainable growth in South Africa

This chapter reviews the literature on the drivers of growth in South Africa. While growth has picked up since the mid-1990s, there are a number of impediments to faster, sustainable growth. These include uncertainty about physical capital investment and respect for property rights, market distortions that thwart competition in product markets and an excessively rigid labour code.

In addition, skills creation, credit and R&D activity remain too low. The fiscal space for more aggressive growth-promoting public expenditure has been reduced by the expansion of welfare payments.

A number of policy implications follow from the analysis, including a need for macroeconomic stability and for credible, transparent policies to address economic and social infrastructure bottlenecks, to maintain fiscal discipline in the face of pressures for further expansion in welfare payments, and to reform product and labour market regulations. Finally, action is also needed to improve the quality of education, create incentives for R&D activity, and improve the efficiency of the financial sector.